Yokeno v. Cotton

Opinion

IN THE SUPERIOR COURT OF GUAM

3

2

3 EDDIE YOKENO, aka MATAO YOKENO,)

as Trustee and Secretary-Treasurer of Able )

4 Industries of the Pacific; and ABLE )

5 INDUSTRIES OF THE PACIFIC, )

)

6 Plaintiffs, )

)

7 vs. ) DECISION AND ORDER 8 )

ELMORE COTTON, JOAQUIN LEON )

9 GUERRERO, JENNIFER DUFFIE, )

PATRICIA MAE COTTON, and )

10 FRANCISCO FLORIG, )

11 )

Defendants. )

12

13

14 On July 22, 2011, a hearing on the Motion to Dismiss came before the HONORABL

15 VERNON P. PEREZ. Attorney Benjamin F. Hueber represented Plaintiff. Attorney Jacques G.

16 Bronze represented Defendants. On November 10, 2011, a hearing on the Motion to Interven

17 came before the Court. Attorney Joseph C. Razzano represented Plaintiff. Attorney Mark S.

18 Smith represented Defendants. Attorney Richard Johnson represented First Hawaiian Bank. Th

19 Court took the motions under advisement. After having heard the Parties' arguments an

20 considering the pleadings and the record, the Court now issues the following Decision and Order.

21

22 BACKGROUND

23 This case arises from a complaint for Declaratory and Injunctive Relief as well as othe

24 claims for Breach of Fiduciary Duty and Appointment of Provisional Director. Plaintiff Eddi

25 Y okeno (hereinafter "Plaintiff') alleges that Defendant Elmore Cotton (hereinafter "Defendan

26 Cotton") and others, breached their fiduciary duty and held a special meeting of the Board 0

27 Trustees for Able Industries of the Pacific (hereinafter "Able") without authority and permissio

28 of the Plaintiff. The following list of motions have followed from the inception of this case:

Plaintiffs Motion for Preliminary Injunction filed August 4, 2009, Defendants' Motion t Yokeno v. Cotton, et. aI., Decision and Order Civil Case No. CV1163-09 Page 1 of6

Dismiss or in the Alternative to Stay Proceedings filed August 24,2009, Defendants' Motion t 2 II Dismiss Amended Complaint filed October 16, 2009. Plaintiff s Ex-Parte Motion for Tempor 3 II Restraining Order and Ex-Parte Motion for Receivership filed December 2, 2009, Plaintiffs Ex

4 II Parte Motion to Lift Stay filed November 10, 2010, Plaintiffs Motion to Compel file 5 II September 26, 2011, Defendants' Ex-Parte Motion to Shorten Time and Motion for Protectiv

6 II Orders filed September 21, 2011, Defendants' Motion to Release Funds Held in the Cou 7 II Registry Account (hereinafter "Motion to Release") filed August 31, 2011 and First Hawaiia 8 II Bank:' s (hereinafter "FHB") Ex-Parte Motion to Intervene. Throughout the duration of this case

9 II there have also been several motions regarding withdrawal and substitution of counsel.

lO II This Court ordered to stay proceedings in its May 12, 2010 Order until the resolution 0 II lithe parallel District Court of Guam case CV09-00019. Then, this Court lifted the stay on Apri 12 1118,2011 pursuant to stipulation by the Parties. Thus, the Motion to Stay has been resolved. Th 13 II Court also recently resolved Defendant's Motion to Release funds Held in the Court Registr

14 II Account. The Court currently has Defendants' Motion to Dismiss and FHB's Motion t 15 II Intervene under advisement. However, this Decision and Order will mostly address the Motio 16 II to Dismiss, since on January 26,2012, FHB filed Withdrawal [sic] ofFHB's Motion to Interven

17 II filed October 27, 2011. I The Court has yet to hear arguments regarding Plaintiff s Motion t 18 II Compel, Plaintiff's Motion for Receivership, Plaintiffs Motion for Preliminary Injunction, 19 II Plaintiffs Motion for Temporary Restraining Order and Defendants' Motion for Protectiv 20 II Order. Any other Motion shall be addressed by the Court subsequent to this Decision and Order.

21

22 DISCUSSION 23 I. Standard 24 II Defendant moves this Court to dismiss Plaintiffs claims pursuant to Rule 12 and Rul 25 II 23.1 of the Guam Rules of Civil Procedure. Rule 12 provides that "every defense, in law or fact 26 II to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-part 27

28 I FHB argued there were no longer any funds remaining in the Court's registry. Thus, the basis for the Motion to

Intervene no longer exists and is moot. Yokeno v. Cotton, et. aI., Decision and Order Civil Case No. CVl163-09 Page 2 of6

claim, shall be asserted in the responsive pleading thereto if one is required, except that th 2 following defenses may at the option of the pleader be made by motion: ... (6) failure to state 3 claim upon which relief can be granted." GRCP Rule 12(b)(6). 4 Under Rule 12(b)(6), the facts in the complaint are presumed to be true, and th 5 complaint is liberally construed in favor of the Plaintiff. See Abramson v. Brownstein, 897 F.2 6 389 (9 th Cir. 1990). "The Rule 12(b)(6) motion ... only tests whether the claim has bee 7 adequately stated in the complaint." Wright & Miller, Federal Practice and Procedure: Civil 2 8 § 1356 p. 298. "Thus, on a motion under Rule 12(b)(6), the court's inquiry essentially is limite 9 to the content of the complaint." Id. The Court should not dismiss the complaint merely becaus 10 the Court doubts the Plaintiff will prevail in the action. See id. p. 340. Furthermore, the purpos II of a 12(b)(6) motion is to assess the legal feasibility of the complaint, not to weigh the evidenc 12 which the plaintiff offers or intends to offer; the motion should not be granted on the ground tha 13 possibility of ultimate recovery is remote. See Schieffelin & Co. v. Jack Co. of Boca, Inc., 725 14 F.Supp. 1314 (S.D.N.Y. 1989). Generally, a motion to dismiss should be disfavored and doubt th 15 should be resolved in favor of the pleader. See Williams v. Gorton, 529 F.2d 668 (9 Cir. 1976). 16 However, should the Complaint fail to state a claim, dismissal without leave to amend i 17 improper unless it is clear that the complaint could not be saved by any amendment. Chang v. 18 Chen, 80 F.3d 1293 (9 th Cir. 1996) (overruled on other grounds). 19 First and foremost, the Court would like to identify Plaintiffs claim as a derivative suit. 20 Plaintiff himself filed this matter as Secretary and Treasurer for Able. This suit rests on hi 21 ability to make a claim on behalf of Able and not on behalf of himself. The Court agrees wit 22 Defendant that this request is based on a derivative suit. Defendants contend that Plaintiff 23 complaint lacks particularity and specificity. Mainly, Defendants argue that Plaintiff did no 24 detail what he believes will cause "immediate and irreparable harm". See Defendants' Motion t 25 Dismiss at 5. Plaintiff argues that he pleaded with Defendant Cotton to "reverse" the "course" 0 26 his actions. Plaintiffs Opp. at 4; ~~16-17 of Plaintiffs Amended Verified Complaint. The Cou 27 finds that Plaintiff has put forth a derivative action. Therefore, as to Defendant's Motion t 28 Dismiss under Rule 12(b)(6), Plaintiff has not failed to state an actionable claim.

Yokeno v. Cotton, et. ai., Decision and Order Civil Case No. CV] ]63-09 Page 3 of6

II. Rule 23.1 2 Defendants also bring this motion under Rule 23.1, which provides: 3 In a derivative action brought by one or more shareholders or members to enforce 4 a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, 5 the complaint shall be verified and shall allege that the plaintiff was a shareholder or member at the time of the transaction of which the plaintiff complains, or that 6 the plaintiffs share or membership thereafter devolved on the plaintiff by 7 operation of law. The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or 8 comparable authority, and, if necessary, from the shareholders or members, and 9 the reasons for the plaintiffs failure to obtain the action or for not making the effort. The derivative action may not be maintained if it appears that the plaintiff 10 does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association.

II The action shall not be dismissed or compromised without the approval of the 12 court, and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs.

I3

14 II GRCP 23.1 (2012). Defendants argue that PlaintiffYokeno is barred from bringing a derivativ 15 II action here as the complaint does not "allege with particularity" the efforts made by Plaintiff t

16 1/ obtain the action he desires. GRCP Rule 23.1. Defendant argues that Plaintiffs action cannot b

17 II maintained if it appears that Plaintiff did not fairly represent the interests of the member 18 II similarly situated. Id.

19 II The Court finds Defendants' arguments strong yet inadequate, as Plaintiff explained i 20 II his Amended Complaint that he attempted to get Defendant Cotton to cease and desist hi 21 II wrongful and unlawful actions. Plaintiffs Amended Complaint ~16. In addition Plaintiff wrot

22 II that future efforts would also be futile. Id. Plaintiff also claims that he was voted off the boar, 23 II after attempting to review and inspect the corporation records. As to any argument b 24 II Defendants that Plaintiffs claim lacks specificity or does not establish futility, the Co 25 II disagrees. Plaintiff has indeed made particular statements in his amended complaint as to hi 26 II efforts before bringing this action. Finally, the actions taken by plaintiff regarding meeting wit

27 II Defendant Cotton and asking him to stop his actions, attempting to access records corporat, 28

Yokeno v. Cotton, et. al., Decision and Order Civil Case No. CVl163-09 Page 40f6

records and objecting to the special meeting would constitute a demand in satisfaction of Rul 2 23.1.

3 In the present case, Plaintiff made Defendant Cotton aware that he was potentially i 4 violation of his duties as trustee and what actions he has taken that were improper. Plaintif 5 alleges with specificity that he told Defendant Cotton his actions relating to the holding of th 6 meeting and running of Able were unlawful and wrongful. The Court does not find that Rul 7 23.1 requires more from a plaintiff than what Plaintiff did here. 8 As to the futility of pleading requirement, Plaintiff explained to Defendant Cotton that he coul 9 not act without Plaintiffs approval. The Court finds that Plaintiffs actions constituted a deman IO and in the alternative, any efforts Plaintiff could have made would have been futile as evidence 11 by Defendant Cotton's continuing disregard for Plaintiff. The Court does not anticipate 12 scenario where Plaintiff could dissuade Defendant Cotton from continuing the meeting and hi 13 course of actions that led to Plaintiffs removal and potentially Able's losses. 14 Defendants also claim that Plaintiff lacks standing as he is not a shareholder in Able? I 15 return, Plaintiff contends that Rule 23.1 specifically allows a derivative suit to a "member' 16 enforcing the right of the corporation or unincorporated association. Plaintiffs Opposition t 17 Defendants' Motion to Dismiss at 6. The Court finds that Rule 23.1 specifically names member 18 as potential Plaintiffs in a derivative suit. Thus, the Plaintiff has standing under Rule 23.1. 19 IV. Rule 8 20 Defendants argue that Plaintiff fails to state sufficient facts in his complaint in violatio 21 of Rule 8 of GRCP. The Court finds that a Rule 23.1 action is subject to Rule 8 requirement 22 and that Plaintiff has complied with those requirements. In the amended complaint, Plainti 23 alleges that Defendant Cotton held a special meeting without permission of Plaintiff in violatio 24 of the corporate procedures requirements. That statement of facts alone would be sufficient i 25 true to satisfy Rule 8. In addition with this finding along with the findings made above, Plaintif 26 satisfied the requirements of Rule 8. 27

28 2 Defendants argue standing cannot be granted in a derivative suit where the Plaintiff is not a shareholder under Shel Petroleum, N. v., v. Graves, 709 F.2d 593, 595 (9 Cir. 1983).

th

Yokeno v. Cotton, et. aI., Decision and Order Civil Case No. CV1163-09 Page 5 of6

V. Request for Stay 2 II Parties have stipulated for a lift of the stay on the case. The Defendants' altemativ 3 II motion for the stay of these proceedings is moot and will not be discussed further.

4 VI. Negligence 5 II Defendant argues that Plaintiff fails to state a cause of action in his Fourth Claim. T 6 II support his argument, Defendant explains that there is no cause of action for negligence against

7 II corporation's officers. The Court agrees with Defendant that the business judgment rule create 8 II a higher standard of negligence and simple negligence would normally not suffice. Yet, here th

9 II activities, if proven to be true, alleged of Defendant Cotton appear to be intentional and maintai

10 II no business purpose. Joy v. North, 692 F.2d 880, 886, (2d Cir. 1982), cert denied, 460 U.S. 1051 th II II (1983); see also FDIC v. Jackson, 133 F.3d 694, 700 (9 . Cir. 1998). Alleged activities such a

12 II knowingly calling a special meeting violation of the corporate procedures requirements an

13 II working to remove Plaintiff from the board of trustee without a meritorious reason Therefore 14 II the Court is not confident that the higher negligence standard applies to the Defendant action

15 II and the Court needs more evidence to make that determination. As to the argument tha 16 II Plaintiffs negligence claim is invalid, Defendants' Motion to Dismiss is denied. 17

18 II CONCLUSION 19 11 Defendants' Motion to Dismiss is DENIED and FHB's Motion to Withdrawal [sic] It 20 Motion to Intervene is GRANTED. 21

22 So ORDERED this \ O~ay of July 2012. 23

24

25 Atk---

HONORABLE VERNON P. PEREZ JUDGE, SUPERIOR COURT OF GUAM 26

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Yokeno v. Cotton, et. aI., Decision and Order Civil Case No. CVl 163-09 Page 60f6